Ahead of the Bell: US Manufacturing

U.S. manufacturing probably expanded for the third straight month in February, although at a slightly slower pace than the previous month.

Economists forecast that the Institute for Supply Management’s manufacturing index dipped to 52.5 from 53.1 in January.

Readings above 50 indicate expansion. The ISM will release the report at 10 a.m. EST Friday, March 1. The ISM is a trade group of purchasing managers.

In January, manufacturing grew at the fastest pace since April, driven by a sharp rise in new orders and more hiring.

It was the second straight monthly increase in the closely watched gauge of manufacturing activity, a sign that factories may be starting to recover after slumping through most of 2012. January’s increase was also encouraging because it showed that demand for factory goods increased even as consumers started to pay higher Social Security taxes, which reduced take-home pay.

Factory output could rise in the coming months. In January, businesses ramped up their orders for industrial machinery, electrical equipment and other capital goods by the most in more than a year. That suggested they are confident about their future growth.

Consumer confidence rebounded in February after a steep fall the previous month. Nearly all workers saw their Social Security taxes increase Jan. 1, which will likely slow consumer spending. But the recovery in confidence suggests Americans are adjusting to the tax increase.

Auto sales, meanwhile, jumped 14 percent in January compared to a year earlier. It was the best January in five years.

Still, some economists fear factory output will be held back by $85 billion in government spending cuts that are set to take effect Friday. Those cuts will force the Defense Department and other agencies to buy fewer goods.

Consumer spending may remain weak for several more months because of the tax increase. And an ongoing recession in Europe is likely to hold back exports to that region.

Industrial production fell in January after two months of increases, the Federal Reserve said. Much of the decline reflected a big drop in auto production that was likely temporary. With sales rising, production will likely rebound in February.

The economy expanded at only a 0.1 percent annual rate in the October-December quarter, the government said Thursday. That was the slowest growth in nearly two years. But economists believe a steady housing rebound, stronger hiring and solid spending by consumers and businesses are pushing economic growth higher in the current quarter.

Economists forecast growth could pick up to a rate of roughly 2 percent in current quarter.